Dodgers Payroll: Early Thoughts on 2023 Luxury Tax

So far, everything seems to be smooth sailing for the Los Angeles Dodgers during the early days of 2023 spring training at Camelback Ranch. Although there was an initial scare resulting from the omission of Clayton Kershaw from the upcoming World Baseball Classic, the veteran lefty assures he’s in excellent health and that the exclusion is nothing more than complications regarding insurance.

For a more detailed explanation of Kershaw’s plight, check out this thorough story by Dylan Hernandez at the Los Angeles Times.

Over or Under?

One of the biggest surprises so far this year was how the team nonchalantly cruised past the projected salary tax threshold after reaching a deal with veteran outfielder David Peralta over a week ago.

At the onset of the winter, the team appeared to be in a good position to reset their luxury tax penalty percentage back to zero by staying under the cap, but Trevor Bauer’s reinstatement put the team back on the hook for approximately $22.5 million for the upcoming year.

Having that money on the books for Bauer situated the team right at the $233 million threshold, but Peralta’s expected salary of $6.5 million pushed the club well past that figure. There were a few more signings that came along last week — including veteran righty swingman Jimmy Nelson and 28-year-old righty reliever Alex Reyes — that increased the projected payroll even more.

Current Payroll Standing

As it stands, the team’s estimated luxury tax payroll for the upcoming year sits right around $244.3 million, according to Roster Resource. That’s approximately $11 million over the threshold. That estimate includes all the approximate salaries for the players not yet eligible for arbitration, plus other miscellaneous expenses, such as the contract buyouts for Justin Turner and Hanser Alberto.

If you’re unfamiliar with the way the luxury tax works, there are a few important things to understand. First, the tax is based on the team’s final payroll for the year. This is important because the club is all but guaranteed to make additional player transactions as the season progresses, making the final payroll tally go up or down.

Secondly, since 2023 will be the third consecutive year the team goes over the threshold — if the Dodgers do indeed end up above it — the club will be taxed at 50% for each dollar it goes over. So even though the tax sounds serious, the actual penalty really depends on how much the club goes over the threshold.

Let’s say, for example, the team finishes the year over at about the $11 million where they are now. At a 50% tax, the result would be about a $5.5 million dollar penalty — not a bad figure, especially if Peralta ends up having a decent season.

2023-24 Outlook

Nevertheless, if the Dodgers continue to add more payroll, there could be some surcharges. If the team goes above $253 million, there will be an additional 12% surcharge. Additional 42.5% and 60% surcharges apply if the club goes over $273 and $293 million, respectively.

Although front office boss Andrew Friedman insists that he views the team’s performance as a higher priority than resetting the team’s tax, it could have been the perfect year for a reset, possibly putting the club in a more ideal financial standing to snag someone like Shohei Ohtani, Matt Chapman or Harrison Bader next winter.

3 thoughts on “Dodgers Payroll: Early Thoughts on 2023 Luxury Tax

  1. I’m all in on Ohtani and Chapman. But Bader? How many ways can you spell risk [age, stats track record, injuries]? But this season I’m going to keep an open mind to see new versions of old players. I think the rule changes are going to mean change of value for some player skill sets.

    1. Nice to dream but the dodgers have never been ones to go crazy on top free agent bidding wars, and there is no reason to think they will with Ohtani. Those big, long term contracts never work out and freidman seems to get this. He is willing to overpay on short ter,m prime years. A policy that appears to make a lot of sense from a historic perspective.

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